INTANGIBLE ECONOMY

Abstract

The process of committing time, resources and money in order to produce useful things in the future is, from an economic point of view a defining part of what business, governments and   individuals do. Over the last few decades, the nature of investment has been changing to large extent.

The type of investment that has risen dramatically is intangible: investment in ideas, in knowledge, in aesthetic content, in software, in brands, in networks and relationship.

The paper describes this change and why has happened.

Any investments, tangible or intangible, is a step into the unknown. No businesses know for sure what the return will be. First of all, owing to its invisibility, intangible investments tend to be worth less if they fail. It’s harder to recover their value by simply selling them.

The upside of an intangible investment is potentially much higher, since it is more likely to benefit from scale (so a modest investment can reap a big return) or synergies (increasing its value directly). So when things go wrong, intangibles tend to be worth less, and when   they go well, they tend to be worth much more.

The tendency of intangible investments to generate spillovers makes radically harder to estimate the future returns to the company. And the absence of markets for many intangibles (which contributes to their sunkenness) makes it harder to form a realistic estimate of their value.

Intangibles also tend to be contested. People and businesses will often vie to see who control them, own them, or benefit from them. This is partly a function of spillovers.

Intangibles have four unusual economic properties. These properties can exist with tangible investments, but on the whole intangible assets exhibit them   to a greater degree.

The numerous reasons for the  growth of intangible investment, including the changing balance of services and manufacturing in the economy, globalization, the increased liberalization of markets, development in IT and management technologies, and the changing input costs of services(which play a greater role in intangible investment).

This paper looks at the role of intangibles in secular stagnation, the puzzling fall in investment and productivity growth seen in major economy in recent years. We argue the increasing importance of intangible investment may have an important role to play in this troubling phenomenon.